Euler Hermes Global Insolvency Index: Insolvencies to rise in 4 out of 5 countries in 2020

• The upward trend in business insolvencies continued in 2019 for the third time in a row: +9 percent year-on-year, according to Euler Hermes Global Insolvency Index, which covers 44 countries that account for 87 percent of global GDP 
• This year, business failures will rise again for the fourth consecutive year: +6 percent year-on-year 
• Asia will be the key contributor to the rise in insolvencies, while Western Europe will see an increase in most countries. USA and Canada have shown increases for the first time in many years in 2019 and we expect +4 percent and +5 percent respectively in 2020 
• Failures of large companies – those with over 50 million euros of turnover –  remain at a persistent and worrying high level

Global bankruptcies are still on the rise, implying higher export risks: this is the conclusion of the latest Global Insolvency Report by Euler Hermes, which covers 44 countries and 87 percent of global GDP and provides the last update of its Global Insolvency Index. Business insolvencies increased by +9 percent in 2019, mainly due to a prolonged surge in China (+20 percent) and, to a lesser extent, a trend reversal in Western Europe (+2 percent) and North America (+3 percent).

Continuing economic weakness, political and social uncertainties

Euler Hermes’ experts believe this worrying trend is due to the combination of a low-for-longer pace of economic momentum, notably in advanced economies, in the industrial sector, and the lagging effects of trade disputes, political uncertainties and social tensions.

In 2020, even if monetary policies should remain supportive, it will not be enough to counterbalance softer demand, tougher price competition and an increase in production costs, notably wages. 

Export risks are on the rise almost everywhere

As a result, insolvencies should rise again by +6 percent globally this year for the fourth time in a row, with Asia still as the key contributor (+8 percent year-on-year) notably due to China (+10 percent) and India (+11 percent). In Western Europe, economic growth will remain below the historical threshold which usually stabilizes the number of insolvencies (+1.7 percent), leading to an increase in most countries. All in all, four out of five countries will post a rise in insolvencies in 2020, with Brazil (-3 percent year-on-year) and France (0 percent) as the key exceptions.    

In 2019, the overall increase was higher, but only two out of three countries were impacted by rising insolvencies. This means that export risks are on the rise almost everywhere: there is hardly a safe haven anymore.

Serious domino effects of major insolvencies

The number of major insolvencies from Q1 to Q3 2019 remained relatively stable year-on-year (249 major insolvencies) but their severity worsened in terms of cumulative turnover (+39.1 billion euros to 145.2 billion euros), which could have serious domino effects on providers along supply chains. The greater the turnover of the bankruptcy candidates, the greater the damage to individual suppliers. The hot spots were construction in Asia, energy and retail in North America, and retail and services in Western Europe.

“Overall, this insolvency outlook calls for a close monitoring of trade disputes and other political and policy-related risks, as the level of economic volatility will be very high all along 2020. More selectivity and preventive credit management actions will be needed,” said Maxime Lemerle, Head of Sector and Insolvency Research at Euler Hermes.

About Euler Hermes

Euler Hermes is the global leader in trade credit insurance and a recognized specialist in the areas of surety, collections, structured trade credit and political risk. Our proprietary intelligence network analyses daily changes in corporate solvency representing 92 percent of global GDP. We give companies the confidence to trade, and be paid. We compensate your company in the event of a bad debt, but more importantly, we help you avoid bad debt in the first place. Whenever we provide trade credit insurance or other finance solutions, our priority is predictive protection. But, when the unexpected arrives, our AA credit rating means we have the resources, backed by Allianz to provide compensation to maintain your business. Headquartered in Paris, Euler Hermes is present in 50+ countries with 5,800 employees. In 2018, our consolidated turnover was 2.7 billion euros and insured global business transactions represented 962 billion euros in exposure.

About Allianz

The Allianz Group is one of the world’s leading insurers and asset managers with more than 92 million retail and corporate customers. Allianz customers benefit from a broad range of personal and corporate insurance services, ranging from property, life and health insurance to assistance services to credit insurance and global business insurance. Allianz is one of the world’s largest investors, managing around 764 billion euros on behalf of its insurance customers. Furthermore, our asset managers PIMCO and Allianz Global Investors manage more than 1.6 trillion euros of third-party assets. Thanks to our systematic integration of ecological and social criteria in our business processes and investment decisions, we hold the leading position for insurers in the Dow Jones Sustainability Index. In 2018, over 142,000 employees in more than 80 countries achieved total revenues of 132 billion euros and an operating profit of 11.5 billion euros for the group.

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